Defense Issues: Volume 11, Number 93-- Squaring DoD's "Circle" DoD's old acquisition system created barriers that raised prices and slowed deliveries. Streamlining and other efficiencies are key to helping DoD maintain readiness, modernize and live within its shrinking budget.

Volume 11, Number 93

Squaring DoD's "Circle"

Prepared remarks of Secretary of Defense William J. Perry at the Military Communications Conference, McLean, Va., Oct. 23, 1996.

It is really wonderful to be here among friends and colleagues, people that I've worked with for decades. It was just three years ago when I spoke at the MILCOM '93 conference in Bedford, Mass.

In that speech, I spoke about the key issues that were shaping the post-Cold War security environment. I spoke about our then-fledgling efforts to build a new post-Cold War relationship with Russia. I spoke about Bosnia facing another winter of starvation and killings and our fear that the fighting there would spread to other parts of Europe.

I spoke about how challenging it was going to be to maintain the readiness of our forces during the major drawdown that we were smack in the middle of at that time. Finally, I spoke about the challenge of maintaining our military's technological edge in an era of smaller defense budgets.

What a difference three years makes! Three years ago, to say that America and Russia would form a pragmatic partnership and that by working together we would dismantle 4,000 nuclear warheads and 800 launchers would have been a wildly optimistic statement. Today, however, that statement qualifies as a fact.

Last week in Russia, I personally witnessed a nuclear submarine being dismantled using equipment provided by the American Defense Department. And as we speak, Russian and American military forces are conducting joint patrols to keep the peace in Bosnia. Three years has made a huge difference in Bosnia.

Three years ago, to say that the future history of Europe is being written in Bosnia would have been a wildly pessimistic statement. Today, however, that statement qualifies as guarded optimism. The killing in Bosnia has stopped, and putting together the peace implementation force -- IFOR -- has given NATO a new unity, a new confidence, a new sense of purpose.

But I want to spend most of my time tonight talking about meeting the other two challenges that I described two years ago: maintaining the readiness of our forces in the face of a 30 percent force reduction and using technology to achieve force dominance for America's military in the face of a 40 percent budget reduction.

The last time we cut the defense budget that much -- after the Vietnam War -- we had a disaster on our hands. We tried to maintain force structure, and we ended up with what came to be called a "hollow Army." This time we are doing it right. We are downsizing the force but at the same time maintaining high levels of readiness -- a force that is fit to fight.

Today, the drawdown is essentially over. We have gone from over 2.1 million in the armed forces to just under 1.5. And in my judgment, the readiness of our forces is at the highest it's ever been.

I see this in many ways. I see it, for example, in the bill we get for O&M -- operations and maintenance accounts. Today, we are spending more O&M dollars for military personnel than at any time in our history. I see it in our statistics -- the monthly readiness reports. I see it with my own eyes every time I visit our bases and am impressed with the quality and morale of our forces. But most importantly, I see it in the performance of our forces when we deploy them: when we deployed them to Haiti, when we deployed them to Bosnia, when we deployed them to Southwest Asia. All Americans can be proud of the performance of their forces when they are deployed.

That's the good news.

But as we anticipated three years ago, there had to be a bill payer for this high readiness level. That is, we had to drive the modernization funding down to new lows to achieve the needed O&M funding. We have been able to get away with this without degrading the effectiveness of the equipment, because during this drawdown we, of course, took the oldest equipment out of the forces first. As a consequence, the average age of our equipment is still at acceptably low levels. But as I told you, the drawdown is now over. Therefore, if we do not get the modernization levels back up, the average age of many of our systems will increase one year with every passing year.

Modernization of our weapon systems is crucial if we are to attain our goal of what we call force dominance. Force dominance means the ability to dominate any potential foe on the battlefield -- now or in the future. The goal is not only to win, but to win quickly, decisively and with a minimum of casualties.

When you look at the constituent elements of force dominance, it is self-evident that modernization is crucially important to each. The element that is the easiest to see is air dominance. By dominating the air, our strike forces can devastate opposition ground and naval forces, while at the same time protecting our own forces from interdiction. Therefore, we are committed to the development of the next generation of tactical fighters -- the F-22, the F-18E/F and the joint strike fighter. These programs are expensive, as I am reminded every day by critics and budget cutters.

Those who want to cut these programs argue that we can maintain air superiority without them. During the Cold War, air superiority was our goal. In Desert Storm, however, we did not have just air superiority. We had air dominance. That air dominance allowed our strike aircraft to devastate the enemy air forces and, at the same time, allowed our ground forces to operate without any air interdiction.

Desert Storm taught us something about air dominance. We had it, we liked it, and we're going to keep it.

A second element of force dominance is precision strike weapons. These weapons allow us to destroy enemy targets with just one or two weapons. Just recently, there's been a report by the GAO [General Accounting Office] that's questioned whether these and other smart weapons are worth the price. The analysis in that report made the profound observation that in Desert Storm we dropped more dumb bombs than smart bombs and at a much lower cost. The effectiveness measure is not how many bombs you drop, but how many targets you destroy. By that measure, our precision weapons performed brilliantly.

The GAO analysis also leaves out details which are hard to quantify but are critically important: the increased collateral damage from dumb bombs and the additional bombers and crews that are lost because of the increased sorties required with dumb bombs.

A third element of force dominance is battlefield awareness, meaning the commanders will have complete, real-time knowledge of the disposition of all enemy and friendly forces. We demonstrated this for the first time in Desert Storm, and we did it with a dazzling array of systems, many of which were used for the first time in battle.

We used satellite reconnaissance systems in a way that they'd never been used before and with very great effectiveness.

We introduced into the theater the Joint STARS [surveillance and target attack radar system] -- pulled it out of development, had the engineers who were running the development test take it overseas and operate it, and it performed like a champ.

We used the global positioning satellite. We found out very quickly that everybody liked it and that we did not have enough hand sets. So many of the soldiers ended up buying their own on the commercial market. That's a pretty good testimony to the effectiveness of the system.

Then we used digital communications systems to pull all of this together. All of the time we were demonstrating a unique form of battlefield awareness, we succeeded in denying any battlefield awareness to the opposing forces. Desert Storm demonstrated that when the number of forces are roughly equal, the synergy of air dominance, precision strike and battlefield awareness gives us the ability to dominate the battlefield, and there is little question that with the new generation of information technology, we can develop force dominance to an extent that we could have only dreamed about five years ago.

But all of this takes real money. The good news is that both the Congress and the administration are planning a 40 percent increase in modernization funding over the next five years. But I must offer a caveat on that good news. Both the Congress and the administration also have a strong commitment to achieving a balanced budget in that same time period, and as the years go on, it will become more and more clear that these two goals are in conflict with each other.

Remember, also, that no one is willing, or should be willing, to sacrifice readiness. The obvious question then is, where is the money for modernization going to come? How can we square this circle?

This will be the big issue which we will address in the Quadrennial Defense Review coming up next year. The QDR will be 1997's equivalent to the Bottom-up Review, which we conducted in 1993.

I don't want to jump the gun on the QDR, but as I see it, if we are to square this circle and find the necessary funds for modernization, it will rely on our ability to realize efficiencies in three key areas. First of all, base closing. The last few years, the savings from base closings have all been negative savings. That is, up until now, base closing has cost us money. There is a very real front-end investment associated with the closing of bases. Just two years ago, the bases we'd closed up to that point cost us, in that year's budget, $4 billion. That is not small change.

In FY [fiscal year] 96, for the first time we broke even on the bases being closed; and by FY 99, we will be realizing a $6 billion annual savings from the bases that have been closed to that point. That represents then, from the $4 billion cost to the $6 billion savings, about a $10 billion annual swing in the budget which we plan to put into modernization.

A second key area where we have to realize efficiencies is inventory reduction. This is not a new or an untested idea. Industry has been doing it for years. But the potential payoff for the Department of Defense is even higher. Since we have inventories in excess of $100 billion, it ties up capital, it ties up people, it ties up facilities.

Interestingly, technology itself can help us affect inventory reductions, because with precision-guided munitions able to hit a target in one or two shots, we can dramatically reduce the number of weapons we have to store, transport and guard.

The third area where we need to realize efficiencies in order to pay for modernization is in acquisition.

Let me mention one other thing about the inventory reduction. We had a Defense Science Board summer study looking for efficiencies this year -- ways we could shift money from support to programs like modernization. They identified also inventory reduction as one of the principal areas, and they estimated that we could save about $10 billion a year in the budget if we implemented the inventory reduction schemes that they were discussing. So again, we're not talking about small change. We're talking about big swings in the budget.

The third area where we need to realize efficiencies in order to pay for modernization is acquisition reform. This has been a primary goal of mine since I came back to the Pentagon three and a half years ago. It's been the goal of every secretary of defense as long as I can remember, and so far in history it's a goal which has been notable by a lack of achievement. This time, we are going to achieve it.

The first year I was in the Pentagon I concentrated on getting new legislation put together and putting an acquisition team in place. The Congress has been very supportive. They gave us the legislation we asked for, and the acquisition team I put in place, in particular the acquisition executives -- Paul Kaminski [DoD], Gil Decker [Army], Art Money [Air Force] and John Douglass [Navy] -- were all experienced in defense program management, so they were able to hit the deck running. They were all committed to making acquisition reform really happen.

The second year of this program, we had to prepare new regulations which manifested the new laws and start half a dozen pilot programs. The purpose of the pilot programs was to demonstrate that we really could save money and get high-quality products by using commercial practices and by buying commercial components. There was considerable skepticism both within the government and without the government on those points, but in the third year we started getting the results from the pilot programs, and the results have been stunning.

So now in the fourth year, our task is scaling up from a half a dozen pilot programs to many hundreds of defense programs. Now pilot programs will guide us the way to the future as we do this scale-up. Let me just illustrate the potential with just one pilot program, the JDAM -- the joint direct attack munition.

This program converts dumb bombs into smart bombs. It's a program that is worthy in and of itself, quite aside from the acquisition reform aspect of it.

Under the old acquisition system, these conversion kits were scheduled to cost $42,000 per bomb. We made it one of the key programs in our pilot programs for acquisition reform. We now have the fixed price bids in. We're now building the new units, and we're building them at $14,000 a bomb. This is not a 5 percent or a 10 percent reduction in cost, but almost a 70 percent reduction.

We are buying tens of thousands of these munitions so that that one program alone is going to save us $3 billion -- $3 billion which we will be able to apply to other modernization programs.

I would also note that acquisition reform does more than improve the quantity of weapon systems we can buy. It also improves the quality. Almost all of our modern weapon systems rely heavily on the new generation of computers, communication systems, semiconductors and software. In all of these cases, the technology is developing at a breathtaking pace, but it is developing at that pace in the commercial sector.

In the past, our defense acquisition system, by creating barriers, had simply limited timely access to this rapidly evolving technology. Our new acquisition system eliminates those barriers and speeds up by at least a generation our access to modern communications, computer and software technologies. So by realizing these efficiencies in these three key areas -- base closing, inventory reduction and acquisition reform -- I believe we can square the circle and find the money we need for the modernization of our forces, and all within the constraints of a balanced federal budget.

Winston Churchill once said, "You can always count on Americans to do the right thing -- after having first exhausted all other alternatives."

Three years ago, when I spoke to this audience, I was hopeful but not certain that America had indeed exhausted all other alternatives for how to conduct a military drawdown properly. Today, I can speak more confidently and say that this time we have, in fact, done the right thing. We have protected the quality and the readiness of our forces, and by all of us working together in the defense industry, in the Defense Department, I am confident that we can maintain that quality and readiness while building a truly dominant military force for the 21st century.

Thank you very much.

Published for internal information use by the American Forces Information Service, a field activity of the Office of the Assistant Secretary of Defense (Public Affairs), Washington, D.C. Parenthetical entries are speaker/author notes; bracketed entries are editorial notes. This material is in the public domain and may be reprinted without permission. Defense Issues is available on the Internet via the World Wide Web at http://www.defenselink.mil/speeches/index.html.